CHAPTER 13 – THE UCC: SALES AND SECURED TRANSACTIONS
TRUE/FALSE
1. The UCC is federal legislation enacted by Congress.
2. Under the UCC, a merchant is frequently held to a higher standard of conduct than a non-merchant.
3. Uncle Brandon promises to give his motorcycle to you at the end of the month. This transaction is
governed by UCC, Article 2, because a motorcycle is within the definition of “goods.”
4. Megan agrees to sell Nancy her Rolex watch but they do not specify a price. In such a case, the court
would not enforce the agreement because all of the essential terms are not present.
5. Express warranties must be in writing so they can be proven in court.
6. Generally, a contract may include language that limits or alters the damages recoverable for a breach
of warranty, as long as the restrictions are not unconscionable.
7. Many states prohibit a seller from disclaiming implied warranties in the sale of consumer goods.
8. A tag attached to a tree in a nursery identifying the tree as a Southern Magnolia creates an express
warranty.
9. A buyer may reject the goods if they fail in any respect to conform to the contract.
10. A seller may not make repairs or adjustments after the goods have been tendered, even if that action
will bring the goods into conformity in order to “cure” nonconforming goods.
11. If Chuck buys frozen cheese from Cheese Inc., then fails to inspect the cheese within a reasonable
amount of time and does not reject the shipment, Chuck has accepted the shipment even if there is
non-conformity.
12. A PMSI can be created only in goods and software.
13. Spicy & Hot, Inc. is interested in expanding its Mexican food restaurant into a Mexican food catering
business. Spicy & Hot, Inc. buys a new delivery van from Van World. Spicy & Hot, Inc. is a buyer in
the ordinary course of business when purchasing the van.
14. First Federal had a perfected security interest in Vicor’s printing press. Second Credit had a security
interest in the same press, but its interest was not perfected. First Federal takes priority over Second
Credit.
15. Great State Bank and First Federal Bank have a security interest in TriColor’s equipment. If neither
secured party is perfected, the first to sue or repossess has priority over the collateral.
MULTIPLE CHOICE
1. In a “mixed contract,” one involving a sale of both goods and services, the court will:
a.
apply the UCC to the provisions of the contract involving the sale of goods and the
common law to the provisions involving the sale of services.
b.
apply the lex mercatoria to the contract.
c.
first determine the dominant purpose of the contract. If the sale of goods dominates the
contract, then the court will apply the law of the UCC, Article 2. If the sale of services
dominates the contract, the court will apply the common law.
d.
apply UCC Article 2A.
2. Newt, a gun dealer, offers to sell a rare civil war musket to Rush, another dealer, for “$15,000,
insurance and shipping paid by buyer.” Rush responds, “I accept. Insurance and shipping costs divided
equally between seller and buyer.” The parties:
a.
do not have a contract since the acceptance violated the mirror image rule.
b.
do not have a contract since Rush’s response was a counteroffer.
c.
have a contact and, in the majority of states, the terms of the offeree control.
d.
have a contract and, in the majority of states, the different terms will cancel each other out.
3. Which of the following is true regarding an open price term?
a.
It makes the contract unenforceable.
b.
The price may be fixed by the seller.
c.
The price may be supplied by the Code at the time of delivery.
d.
The price is set by the buyer.
4. To simplify, clarify, and modernize the law governing commercial transactions, the UCC permits the
use of “open terms” in sales contracts. In the use of “open terms,” which of the following is true?
a.
The court will not enforce an agreement if the parties have not settled the price in the
contract.
b.
If time of payment is not mentioned in the contract, payment within a commercially
reasonable time is presumed.
c.
It is critical for the parties to specify at what moment they created the contract.
d.
All of the above are true.
5. Under the UCC statute of frauds, the writing for a sale of goods must:
a.
state quantity.
b.
state price.
c.
be signed by both parties.
d.
be notarized.
6. Betty’s BBQ orally contracts with Denny’s Design House for 10,000 matchbooks at the price of 10
cents per matchbook. The matchbooks are to be embossed with a logo to be designed by Denny’s
Design promoting Betty’s BBQ. Price, payment terms, delivery terms are agreed upon between the
parties. Denny’s Design creates the logo, gets Betty’s BBQ’s approval of the design and begins
applying the logo on the matchbook covers. Denny’s Design has almost finished the order when Betty’s
BBQ calls to say it has decided to make the eatery a smoke-free restaurant and cancels the order.
Denny’s Design sues, but Betty’s BBQ states that the agreement is unenforceable under the statute of
frauds. Who wins?
a.
Denny’s Design House wins. This situation falls under an exception to the statute of
frauds.
b.
Denny’s Design House wins. This is a service contract for design of a logo. Therefore, the
UCC, including the statute of frauds provisions of Article 2, does not apply.
c.
Betty’s BBQ wins. This is a contract for $1000. The statute of frauds requires all sales
contracts in excess of $500 be in writing.
d.
Betty’s BBQ wins. The statute of frauds only applies to merchants. Betty’s BBQ is not a
merchant in this instance because it intended to give the matchbooks away and not sell
them.
7. The stated purpose(s) of Article 2 of the UCC is/are:
a.
to simplify the law governing sales.
b.
to permit the continued development of business practices through custom and usage.
c.
to make the laws governing sales uniform among the various states.
d.
All of the above are correct.
8. UCC Section 2-204 provides three important rules that enable parties to make a contract quickly and
informally. These include all but which of the following?
a.
The parties may make a contract in any manner sufficient to show that they reached an
agreement.
b.
The agreement must be written, but the writing may be a simple memo, a letter, or
informal note.
c.
The UCC will enforce a deal even though it is difficult to say exactly when it was formed.
d.
A court may enforce a bargain even though one or more terms were left open.
9. Wayne agrees over the phone to sell L.J. Cartwright 1,000 yards of 1-inch diameter rope. Wayne
honestly believes that L.J. Cartwright offered to pay $1.00 per yard whereas L.J.Cartwright actually
offered to pay 75 cents per yard. If the parties subsequently take their dispute to court, the fact that
L.J.Cartwright admits on the stand that he offered to pay Wayne 75 cents per yard will:
a.
prevent L.J.Cartwright from using the statute of frauds to nullify the contract.
b.
create an unconscionable contract.
c.
make it possible for Wayne to enforce the contract to sell 1,000 yards of rope at a price of
75 cents per yard.
d.
Both a and c are correct.
10. During the development of commercial law centuries ago, businessmen throughout England and
Europe settled disputes in trade organizations rather than in civil courts, and relied on a body of rules
which became known as the lex mercatoria. By the middle of the twentieth century in the United
States, change in contract law was needed. This change became the Uniform Commercial Code,
which was drafted by:
a.
members of the United States Congress.
b.
legal scholars at the American Law Institute and the National Conference of
Commissioners on Uniform State Laws.
c.
a committee made up of legislators and merchants from all 50 states.
d.
legal scholars from the European Union
11. Which of the following warranties provides that the goods will be useable for the ordinary purposes
for which they are used?
a.
Infringement.
b.
Fitness for a particular purpose.
c.
Merchantability.
d.
Title.
12. An express warranty can be created by which of the following?
a.
An affirmation of fact or promise.
b.
A description.
c.
A model.
d.
All of the above.
13. A sales representative at Oxtren, Inc orally told the purchasing agent at Wety, Inc. that its industrial
saw is suitable for cutting through steel up to one inch thick. Which statement is correct concerning the
claim about the saw?
a.
The claim is an express warranty.
b.
The claim is an implied warranty of merchantability.
c.
The claim is not a warranty because it is not in writing.
d.
The claim is not a warranty because it is an opinion.
14. Tu-thumbs buys a used paint sprayer from the local paint store. The sprayer had a large sign on it
which said “AS IS.” The dealer made no promises or statements concerning the performance of the
paint sprayer. When Tu-thumbs attempts to spray paint his house, the trigger on the sprayer sticks in
the “on” position and before Tu-thumbs can pull the electrical cord to cut the power, paint is sprayed
all over his prize Borzoi dog that is scheduled to be shown in a dog show the next day. Tu-thumbs sues
the dealership. Who wins?
a.
Dealer wins; there were no express warranties and all implied warranties have been
successfully disclaimed.
b.
Tu-thumbs wins; he can recover on the basis of express warranties.
c.
Tu-thumbs wins; he can recover on the basis of the implied warranty of merchantability
because the word “merchantability” was not used in the disclaimer.
d.
Dealer wins; even though there were implied warranties, the damage to the dog could not
have been foreseen.
15. Which one of the following warranties arises in a sale of goods?
a.
Implied warranty of merchantability.
b.
Warranty against adverse possession.
c.
Implied warranty of quiet enjoyment.
d.
All of the above arise in a sale of goods.
16. Which of the following is beyond the scope of Article 2 of the UCC??
a.
Sale of televisions.
b.
Sale of cattle.
c.
Sale of Apple iPods.
d.
Sale of stocks and bonds.
17. A warranty that goods are fit for the ordinary purpose for which they are used is assumed in a contract
for their sale. This warranty is called:
a.
Express warranty of merchantability
b.
Implied warranty of fitness for particular use.
c.
Express warranty of fitness for particular use.
d.
Implied warranty of merchantability.
18. Which of the following is not a fixture?
a.
Bricks, purchased for an oven.
b.
A sink, purchased to go into a homeowners bathroom.
c.
A large painting hung on a living room wall.
d.
Window frames, being delivered to a hotel.
19. Without an agreement, there can be no security interest. Must the agreement be in writing?
a.
No. Security interests may be created electronically.
b.
Yes. The security interests must be in writing.
c.
No. The security interest may be oral.
d.
None of the above is correct.
20. Great State Bank loans money to Seth, securing the loan with property owned by Seth. Great State
Bank is advised by its attorney to file a financing statement. Great State Bank doesn’t understand why
it should spend the extra money for this filing, since Seth has told them that he has no other creditors.
Why should Great State Bank file a financing statement?
a.
There are criminal penalties for failing to file.
b.
The financing statement allows Great State Bank to repossess the collateral on default
without a court order.
c.
The financing statement will protect Great State’s priority rights with other creditors by
giving notice to other creditors that it claims a security interest in the collateral.
d.
Filing the financing statement is necessary to complete the attachment requirement in
order to create a security interest.
21. At her neighbor’s garage sale, Constance buys a vanity dressing table from her neighbor, Carlos, for
$160. Six months earlier, Carlos had purchased the table on credit, financed through All Purpose
Furniture. Constance purchased the vanity table for her own personal use, without any knowledge
that Carlos had signed a security agreement giving All Purpose Furniture, Inc. a security interest in the
vanity table. All Purpose Furniture did not file a financing statement. Constance does not know that
Carlos is still paying off the purchase money security interest and owes All Purpose Furniture, Inc.
$400. Under these circumstances:
a.
Constance takes the vanity table subject to All Purpose’s security interest because All
Purpose’s security interest automatically perfected. A perfected security interest takes
priority.
b.
Constance takes the vanity table free of All Purpose’s security interest because she is a
buyer of consumer goods
c.
Constance takes the vanity table free of All Purpose’s security interest because she is a
buyer in the ordinary course of business.
d.
Constance must pay All Purpose $400 or the table must be resold, and she and All Purpose
will proportionately share the proceeds from the sale of the table.
22. Which of the following is correct concerning termination statements?
a.
A secured party must file a termination statement only when consumer goods are involved
and the debtor has paid for them.
b.
The termination statement indicates that the creditor no longer claims a security interest in
the collateral.
c.
The secured party must file a termination statement within 3 days of a consumer debtor’s
demand, provided the debtor has paid the full debt.
d.
All of the above are correct concerning termination statements.
23. Great State Bank took a security interest in Gresham, Inc.’s meat processing equipment. Gresham
defaulted on the loan. Which statement is correct?
a.
Great State Bank may take possession of the collateral.
b.
Great State Bank may ignore its rights in the collateral and sue Gresham for the money
owed.
c.
Both a and b are courses of action that Great State Bank may follow.
d.
Neither a nor b are courses of action that Great State Bank may follow.
24. Which of the following is an example of a purchase money security interest in consumer goods?
a.
A doctor purchasing a computer on credit to create a website to make services and
information available to her patients.
b.
A doctor purchasing on credit a blood glucose monitor to check his own blood sugar
levels.
c.
A doctor purchasing a TV/VCR unit on credit to place in her office waiting room.
d.
A doctor purchasing an exercise bike for his employees to use over the lunch hour.
25. Florence borrows $1,500 from Fremont, leaving her gold necklace with Fremont as collateral. Two
weeks earlier, Florence had borrowed $1,000 from Corner Bank. Florence signed a security agreement
and a financing statement giving Corner Bank a security interest in the same gold necklace. The
financing statement is filed in the appropriate location. If Florence defaults on both loans, which
creditor has the superior rights to the necklace?
a.
Fremont, because his loan was the first to attach.
b.
Fremont, because possession takes priority over filing.
c.
Corner Bank, because Fremont did not perfect his interest.
d.
Corner Bank, because Fremont did not have a written security agreement.
ESSAY
1. Jones contracts to buy a computer from Martin for $1500. The contract calls for Martin to service the
computer quarterly for the first year and to tutor Jones on how to use the software. Is this contract
covered by the UCC or common law?
2. Discuss the importance of the UCC to the law of sales. Include who created the UCC, how it becomes
law, and the stated purposes of the statute.
3. A common problem in cases of express warranty is being able to separate statements that create
express warranties from statements that do not. Discuss what type of statements create an express
warranty and give some examples of statements likely to create an express warranty.
4. Identify three remedies for a seller when the buyer breaches a contract and three remedies for a buyer
when the seller breaches a contract.
5. Explain the difference between attachment and perfection.